Strategy of Starbucks

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1.Introduction

Company
A world phenomenon which started in 1970 from Seattle’s historic pike place market. The name of this phenomenon is inspired from classic novel about whaling industry. Howard Schultz is the man behind this occurrence, that claims 7, 521 company owned, 5,647 licensed stores in 41 countries. SBUX or Starbucks as we all know. Acquisition of 65 Seattle coffee company in 1998 made it possible for Starbucks to enter UK market Mission statement of Starbucks

“To inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time.” To grow SBUX invested in human resources, technology – to give hi-fi and better control of stores which increased in number day by day, stores – minute details which included fixtures and fittings, illumination, location – the principle of “everything matters”. Sales sky rocketed with new outlets being opened. The company ventured out into almost everything from restaurant, coffee shop, music (Starbucks, 2010). With this cluster spoke and hub model each outlet began to eat flesh of each other which resulted in downward movement of sales. The chart given below depicts revenue growth for the period June 2000 to June 2008.
( Seekingalpha,2010)

However rapid store expansion is not the only cause for this downward trend, let us try to analyze what factors or elements contributed to success and failure of SBUX strategy to grow by rapid expansion

2. The Strategic Triangle
Sustainable Competitive Advantage is the mantra for any business organization in order to operate and be successful in this fierce competitive market. We will be using strategist guru Ohmae’s 3 C’s model. 3 C stands for: a)Corporate

b)Customer and
c)Competition.
Food and beverage retail chain Starbucks came up with their strategy after analyzing each one of the above element 2.1 Corporate strategy
SBUX is basically a company involved in importing; roasting and selling coffee beans, when Howard Schultz bought Starbucks in 1987 he merged his espresso café bars with Starbucks, he did this to gain advantage of the name “Starbucks” which was known for selling quality roasted coffee beans among the customers. SBUX began operations with focus to be different, it adopted the strategy of differentiation and were selling atmosphere ‘a unique third place’ to its customers. The relation between employees and management was also unique, the strategy of extending medical benefits to part timers prove this point. SBUX is the retail chain which started loyalty programme for customers, offered free wireless internet connection while enjoying the atmosphere. Starbucks reaped benefits from the strategy of differentiation The following financial data of Starbucks proves this

Year EBIT (in millions)
2003432.47
2004620.63
2005796.35
2006906.24
20071,056.36
2008455.7
2009559.9

It may be noted that the period during 2008 – ’09, EBIT was reduced to 455.7 and 559.9 millions, it not only due to economic recession. With rapid expansion, the strategy of Starbucks changed from catering elite customers who relished coffee to convenience for mass customers by increasing number of outlets within 5 mile distance. Starbucks met failure in music industry when it tried to sell through CD burners because SBUX did not have any competitive advantage over others even when it had one or two exclusive music labels. Then it also faced similar reaction from loyal customers when it moved into restaurant industry offering breakfast as it deviated from the core business of promoting good quality coffee but bottled cold coffee got good response. 2.2 Customer

One of the most important factors for any business institute is it has to divide their market share depending on the needs of the people to whom they cater. It is advisable to identify potential customers and area before opening outlet at a random basis, Starbucks is known for possessing the right device to identify...
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